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Russian TV is finding its niche

Worth seen in speciality channels with target audiences

When Russia's Prof-Media — the media arm of Russian oligarch Vladimir Potanin's industrial group Interros — paid a rumored $30 million for underutilized Moscow TV channel 2X2 in February, many industry observers here thought it paid over the odds.

Prof-Media had little to say about the purchase price or its plans for the channel — a Moscow city and regional frequency founded in 1995 that had mainly screened a thin diet of music clips, magazine programming and occasional movies. The company only confirmed that it completed a policy of acquiring a strategic presence in all major sectors of the Russian media market.

A couple of months later, Prof-Media general director Rafael Akopov gave a first glimpse of plans for 2X2, unveiling station branding and content ahead of a planned relaunch later in the year. Natalia Vashko, a rising young television program director with a background in marketing and ratings research, was appointed head of 2X2.

Prof-Media eventually revealed the station's new profile in October when it hosted a discrete but elegant presentation for a select group of industry insiders and trade reporters. With a planned launch date of April 1, 2X2 will be Russia's first adult cartoon channel, 24 hours a day and free-to-air.

The radical overhaul is indicative of where investors believe value can be generated in the Russian television marketplace, with carefully targeted niche channels emerging as the weapon of choice.

"We didn't have any fixed ideas for 2X2 when we bought it — content and branding was a wide open book — but working with data from (market research company) TNS Gallup and (media sales agency) Video International, we soon hit on animation as a key niche ripe for exploitation," Vashko says.

Analysis of the Moscow market showed that while 11- to 34-year-olds make up 38% of the city's population, they account for only 27% of its television audience. But the audience share for cartoon programming that airs on existing Russian channels is consistently higher than average channels' ratings, with the exception of popular fourth-ranked entertainment channel CTC.

"The TNS Gallup research showed that most of the (11-34) audience hops between channels. Animation catches the eye and trawls in viewers. Cartoons are relatively cheap content, fast and easy to buy and dub, especially in Russia where the major channels are not always eager to accept offers from the Hollywood majors for these (animation) parts of their packages," Vashko adds.

The toon channel expects to win a market share of between 2% and 4% in Moscow during its first year and break even within three years on an annual operating budget of about $10 million-$15 million.

Interros has since acquired the Russian entertainment channel TV3 for $550 million but is understood not to be planning a major change for the channel, which has a 3% market share nationwide.

If 2X2's new identity is clearly a marketing creation, it also is patently a sign of rapid market growth.

With predicted television advertising spending this year of $3 billion fueling intense market activity, other niche operators are emerging. Moscow's Treti Kanal (Third Channel), which currently airs three or four hours a day on city channel TV Tsentr's frequency, is planning to launch a 24-hour capital city news channel on satellite service NTV Plus. St. Peterburg's city station Channel Five — granted a national frequency as of Oct. 1 — is aiming to capture the politically sophisticated and critical audience who watched Vladimir Gusinsky's NTV before it was swallowed up and dumbed-down by Kremlin ally Gazprom. Even magazine and publishing group Soverschenno Sekretno (Top Secret) is developing a satellite channel built around its long-running investigative show on NTV.

For Michael Kralert, senior media and technology consultant at Deloitte's Moscow office, the rash of interest in niche channels in Russia comes as no surprise.

"There are some very positive assumptions that are influencing the media market in Russia, where overall the economy is doing very well," says Kralert, a Czech citizen who used to be chief financial officer at Czech public television.

"Television is still an emerging market here and advertising spending is growing year-on-year at about 20% and will continue to do so for the next three or four years," Kralert says. "That is a realistic forecast and very good when you consider that comparable markets, for example those in Europe, are flat at the moment.

"There is a trend toward fragmentation — Russia today does not have a mass market, but a market of masses. This fragmentation is a great opportunity for thematic channels."

Though the major national frequencies are all occupied, the possibilities offered in years to come by digitalization — which will more than quadruple availability at a stroke — make for an expansive television horizon in Russia.